Global Economics

Berlusconi's First Test: Saving Alitalia

Italy is watching as the incoming prime minister returns to face a crisis at the national airline. Jobs and tourism are at stake

He is still more than a week away from taking office, but Italy's newly elected Prime Minister, Silvio Berlusconi, is wrestling with his first major crisis: the imminent bankruptcy of Alitalia.

If the national carrier goes under, more than 18,000 staff could lose their jobs. There would also be repercussions for the country's airports and its tourist industry—quite apart from the humiliation for the government—but there is only enough money in the kitty to keep the company flying until the end of April.

Alitalia's imminent collapse is Mr Berlusconi's fault. Romano Prodi's government negotiated an agreement with Air France-KLM that would have kept the airline flying. The French carrier, the world's largest by revenue, was the only one willing to take on the Italian company with its ageing fleet, cosy union agreements, shrinking customer base and massive debts—at a cost of 2,300 jobs.

But in the thick of the election campaign, Mr Berlusconi described the French offer as "arrogant and unacceptable", and said that if he was re-elected he would overturn it. Heartened by Mr Berlusconi's rhetoric, the airline's unions went back on their agreement with the French and increased their demands.

Air France responded by suspending talks, but the unions were convinced that it was just a ploy and that the company would come back to the table once Mr Berlusconi was in office. After winning the election last week, Mr Berlusconi belied his hostile remarks on the stump by saying that he planned to raise the issue of the airline's future with President Nicolas Sarkozy.

But this week the French decided that the light was not worth the candle. Jean-Cyril Spinetta, Air France-KLM's chairman, informed Mr Berlusconi's adviser, Gianni Letta, of his decision on Monday, citing his "extreme tiredness with the negotiations and the increasingly grim economic picture". In a terse one-line statement, the French airline said it was retiring from negotiations to take over the Italian national flag carrier, "because preconditions have not been met". Those conditions include acceptance of the agreement by the incoming government and the unions, and the dropping of a legal case by SEA, the company that operates Milan's Malpensa airport, against Alitalia.

Alitalia is losing €1m (£800,000) per day and the Italian government has been forbidden by the EU to lend it any more money. The company has for years been the plaything of governments and unions, leaving the taxpayer to settle the bill.

Mr Berlusconi signally failed to get a grip on the airline's finances during his last term as prime minister, despite being in office for five years. La Repubblica yesterday calculated that Alitalia had cost the country €15bn over the past 15 years, "or €270 for every citizen, newborn babies included".

During the election campaign Mr Berlusconi claimed that Italian investors—possibly including members of his family—could be found to rescue the airline, but they have been slow to come forward. A smaller Italian company, Air One, this week said it could be interested in having another look.

Mr Berlusconi, who last week hosted President Vladimir Putin at his Sardinian villa, also hopes to generate interest from the Russian airline Aeroflot, which last year looked into a deal but declined to make an offer.

Last night, Mr Prodi's outgoing government held an emergency cabinet meeting to discuss the crisis and announced a €300m bridge loan to the airline, in defiance of the EU, to be repaid by 31 December, to stop the airline going bust on Mr Prodi's watch. That adds a further €5.13 per citizen to the carrier's bill.